2023 (1) TMI 66 - AT - Income Tax

Tribunal rules in favor of assessee, emphasizes correct procedural provisions under Income Tax Act

Specialty Papers Ltd Versus DCIT CC 12 Mumbai And DCIT CC 2 (2) Mumbai Versus Speciality Paper Ltd

The Tribunal allowed the assessee's appeal for the assessment years 2010-11 and 2011-12, holding that the assessment should have been conducted under ... Assessment u/s.153C OR assessment order u/s. 144 - date of initiation of search in case of “other person‟ - Last date which can be assumed safely being the “date of search‟ in case of the assessee i.e. “other person‟ - HELD THAT:- As the facts in the case of the assessee as well as the facts in the case of the Global Papers Impex Ltd [2022 (9) TMI 1141 - ITAT MUMBAI] are identical, respectfully following the decision we also quash assessment order for A.Y. 2010-11 passed by the ld. AO u/s. 144 of the Act. Accordingly, Ground No. 1 of the appeal of the assessee is allowed. Issues Involved:1. Validity of the assessment order under Section 144 instead of Section 153C.2. Rejection of the books of accounts under Section 145(3).3. Estimation of gross profit.4. Addition on account of unexplained loan creditors under Section 68.5. Ad-hoc addition of unexplained cash credit under Section 68.Issue-wise Detailed Analysis:1. Validity of the Assessment Order under Section 144 instead of Section 153C:The primary contention raised by the assessee was that the assessment should have been conducted under Section 153C of the Income Tax Act, 1961, instead of Section 144. The assessee argued that since the search took place in the case of Reliable Paper (India) Ltd. and its group concerns, and incriminating documents were found, the assessment should have been made under Section 153C. The Tribunal noted that the search was conducted from 23.02.2010 to 28.04.2010, and the last date for assuming the date of search was 19.11.2012. It was concluded that the assessment for the years 2006-07 to 2011-12 should have been under Section 153C. The Tribunal quashed the assessment order under Section 144, following the precedent set by the co-ordinate bench in the case of Global Paper Impex Pvt Ltd.2. Rejection of the Books of Accounts under Section 145(3):The Assessing Officer (AO) rejected the books of accounts under Section 145(3) due to the absence of necessary records such as delivery challans, transport bills, lorry receipts, expenditure accounts, and quantitative details of stock and bank loans. The Tribunal upheld the AO's decision to reject the books of accounts, citing the lack of compliance and the non-production of essential documents by the assessee.3. Estimation of Gross Profit:The AO estimated the gross profit at 28% of the total turnover, amounting to Rs. 31,38,34,088/-. However, the Commissioner of Income Tax (Appeals) [CIT(A)] reduced the gross profit rate to 25%, based on a decision in a similar case involving a group concern. The Tribunal upheld the CIT(A)'s decision to estimate the gross profit at 25%, considering it reasonable and justified.4. Addition on Account of Unexplained Loan Creditors under Section 68:The AO made an addition of Rs. 10,43,01,079/- under Section 68, citing unexplained loan creditors. The CIT(A) confirmed this addition, and the Tribunal upheld the CIT(A)'s decision, agreeing that the assessee failed to provide satisfactory explanations and evidence regarding the loan creditors.5. Ad-hoc Addition of Unexplained Cash Credit under Section 68:The AO made an ad-hoc addition of Rs. 10,00,000/- as unexplained cash credit under Section 68. However, the CIT(A) deleted this addition, and the Tribunal upheld the CIT(A)'s decision, finding no substantial basis for the ad-hoc addition.Conclusion:The Tribunal allowed the assessee's appeal for both assessment years (2010-11 and 2011-12) on the ground that the assessment should have been made under Section 153C and quashed the assessment orders made under Section 144. Consequently, all other grounds in the appeal of the assessee and the Revenue became infructuous and were dismissed. The Tribunal's decision emphasized the importance of following the correct procedural provisions under the Income Tax Act, ensuring that assessments are made based on appropriate sections.